Daily
After a 9.1% reversal off the lows from two weeks ago, XLF breaks thru a daily channel here to come back to test the area of bad structure highlighted in the yellow box here (as expected). Seemingly hits resistance around the previous daily demand level from the end of May and closes the week with a bearish engulfing candle.
If we add EMA/SMA indicators to the chart, we see that it rejects at the 50EMA (second picture). This rejection could’ve been played, but without another signal or confirmation candle, it could’ve easily blown thru (i.e. playing it is a gamble). It’s possible we chop here for the entire week in range, break thru the 50EMA resistance, or fall back into channel.
I don’t see a play here until we see some kind of confirmation candle on which direction the market wants to take this. It’s FOMC week and it’s possible we don’t see a clearer picture until after.
Weekly
Weekly we’re seeing a chop zone around pre-COVID highs (yellow box area) and also the 200 and 5/9EMA (it appears to be pinned in between, just chopping). Some indecision at this point — this past week’s breakout attempt saw the candle close below the 9EMA which signals to me that Bears are in control until proven otherwise. I’d be watching for a false breakout reversal back into the yellow (current) daily channel for a potential entry and confirmation to short XLF. A break above the weekly 9EMA and I feel it’s going to want to test the 20EMA which is ~ $34.30 or 20SMA which is ~ $34.80.
Monthly
After hitting channel top and reversing earlier this year, we’re now back around pre-COVID highs (red line) which is also lining up with a bounce off the 50EMA (second image).
Still have 1 trading week left in the month and the previous month’s bearish candle has not yet been negated.
Potential for a positive RSI divergence on the monthly here, but it appears to me to be indecision until FOMC is announced.
Overall Thoughts
Pretty indecisive….could go many ways here — chop, follow thru on the breakthru on the daily channel, false breakout reversal…no real clear sign yet to me. Still a week left of trading in the month, best to wait until confirmation or closer to close on Friday to see what we could potentially do here before entering a trade long or short.
